Heap of pharmaceutical drug and medicine pills scattered on dollar cash money. Cost of medicinal product and treatment concept.

California Governor Signs Law that Exposes Drug Prices

On Monday, California Governor Jerry Brown signed into law new legislation that requires drug companies to report price hikes for prescription medication. The law paves the way for other states to follow, says Reuters.

The law, SB 17, will require pharmaceutical companies to give 60 days’ notice if a drug’s price will increase more than 16% over a period of two years. The company must also explain why they are raising the price.

Insurance companies will also be affected by the new law, which will require them to explain the relationship between healthcare premiums and drug prices.

Governor Brown says the law is aimed at improving income inequality. But critics say the law doesn’t go far enough to bring down drug prices, and the legislation lacks the proper framework to enforce a price reduction.

Drug companies argue that the law will threaten development and innovation.

Over the last two and half years, the drug lobby has spent more than $17 million to oppose the regulation. The legislation will likely bring a legal challenge to the regulation before it goes into effect in 2019.

“Californians have a right to know why their medical costs are out of control,” said Brown at the signing ceremony. “This measure is a step at building transparency, truth, exposure to a very important part of our lives.”

The United States is one of the only developed nations that doesn’t regulate drug prices. Consumers have become outraged over price increases from companies like Valeant Pharmaceuticals International Inc., which acquired older drugs and raised the prices significantly.

Biotechnology Innovation Organization, or BIO, a leading biotech industry trade group, condemned the law.

“This law will neither provide meaningful information to patients nor lower prescription drug costs,” said BIO in a statement. The organization said the law will “jeopardize the future of California’s leadership in this innovative industry.”